Portillo’s shares dip after first earnings report reveals rising costs, increased menu prices
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Rising wages and higher costs for ingredients such as beef sent Portillo’s shares falling early Thursday as the Chicago-based hot dog and Italian beef chain reported earnings for the first time since going public.
The company’s operating income fell 8.8% during the quarter that ended Sept. 26 compared with the same period last year, Portillo’s said in a news release. Meanwhile, revenues rose 15.3% as the company opened a handful of new restaurants and saw customers spend more on each visit.
President and CEO Michael Osanloo said he was pleased with the company’s performance, “which has reflected continuing improvement in guest traffic as our business is evolving into a new normal,” he said.
Shares dipped nearly 22% after the company reported earnings Thursday before returning to 6.9% below the previous day’s close by noon. The company’s share price has more than doubled since it began trading on the Nasdaq Global Select Market last month.
Portillo’s raised prices by about 3% early in the fourth quarter to help cover rising commodity and labor costs, fueled by an “extremely tight” labor market, Chief Financial Officer Michelle Hook said during a call discussing the company’s earnings.
Average hourly wages were nearly 20% higher during the third quarter than the prior quarter, she said. The company’s more than 500 restaurant managers also received restricted stock unit grants when the company went public, Osanloo said.
Challenges with hiring mean Portillo’s is about 10% understaffed, but the company has not had to limit hours of operation or close dining rooms, executives said.
Even with the hiring challenges, the company is moving ahead with plans to grow its number of restaurants by about 10% per year. Two restaurants in Wisconsin and Indiana are slated to open later this year. Another seven are expected to open next year, in Florida, Arizona, Indiana, Michigan and a first restaurant in Texas, Osanloo said.
New restaurants are also being designed with a greater emphasis on to-go orders as customers shift from dining in to the drive-thru during the pandemic, Osanloo said. New prototypes have smaller dining rooms, outdoor patios, dedicated entrances for delivery drivers and convenient spots for curbside pickup. A Madison, Wisconsin, restaurant opening in two weeks will have a third drive-thru lane for people picking up orders placed in advance.
Consumers want restaurants to be flexible and give them options for dining, Osanloo said.
“If you’re a mom with three screaming kids in the back, you don’t want to wait in line, you’ve ordered ahead in the app and you’ve paid, you just want to pick up your food,” he said. “We have made that super easy, and we’re going to see how that performs.”
